With the combination of the European and US crises and the grotesque background of negotiation “in extremis” [in extreme circumstances], the world economy is going through an unprecedented situation, from the historical point of view. A never-ending vertigo is clinging to the United States and Europe. The world is waiting for the opinion and action of the rating agencies that are the ones that appear to give the final verdict. After the agreement reached by Obama and the Republicans, the agencies kept the triple A rating for the US debt, but Moody’s and Standard and Poor (S&P) changed it from “stable” to “negative.” They had already lowered Greece’s grade, without reaching the level of default. After the summit in the Euro Zone, a tense calm was maintained, while the crisis erupted at the Capitol. With the sealing of the agreement between Democrats and Republicans, steep declines in the stock markets on both sides of the Atlantic have begun. Gold, German bonds and the Swiss mark are acting as an alternative shelter of value in view of the fall of the dollar and the euro. Switzerland announced that it is going to increase liquidity and reduced the fluctuation margin of the LIBOR rate (its main instrument of monetary policy) by 0.5%. At the same time, Treasury bonds continue attracting increased masses of capital, owing to the limited existing sources of international security.

QE3? and the European Stabilization Fund

In the US, the Dow Jones industrial average fell for 8 consecutive days, something that appears to have happened only 7 times in history, including the year when the US entered the Second World War. In Europe, because of this week’s stock sales, more than 400 billion euros of market capitalization of leading indexes of Germany, the United Kingdom, France, Italy, Spain and the Netherlands, or what is the same thing, almost the equivalent of the volume that the European Stabilization Fund has to carry out bailouts, vanished. Churchill’s much-cited maxim that says, “the Americans will always do the right thing … after they have exhausted all the alternatives,” well describes the modus operandi of both the US and Europe. In fact, strong pressure exists on Europe to put the bailout plan for Greece into practice, on the European Central Bank (ECB) to stimulate purchases in the secondary markets for greater volume than it is doing or for them to increase the amount of the European Stability Fund, to assure a possible bailout of Italy and/or Spain (the fourth- and third-largest economies of the region, respectively). In an action that has turned out to be unusual, the risk rating agency S&P demanded that the ECB intervene. This is a “dialogue” that is occurring directly “on the field.” The agencies are pushing for the decline, and meanwhile they are notifying governments or financial organizations what it is they have to do so that they will stop pushing. For their part, governments and summit meetings are venturing plans by estimating the reaction of the markets and rating agencies. Faced with the very bad prospect of the US economy and stocks, Dow Jones, NASDAQ, and S&P closed yesterday, August 3, on positive ground. It is speculated that this responds to the fact that a new round of financial measures, a QE3, is being prepared.

Limits of state intervention

It can be interpreted that this kind of action at the extreme, at the edge of the abyss, this parody of negotiation in extreme circumstances of governments, congresses and summits, in front of the menacing look of the rating agencies, corresponds both to the weight of globalized finance capital, represented in the agencies, and to the limited ability to act that states now have. What is happening, the way in which events are unfolding, is a proof of that limited ability to act. It is not necessary to wait very long; it can already be seen that they are unable to act as they did after the crisis at Lehman Brothers. The structural basis of the situation of weakness is the fact that clearly recessive elements (the situation of the United States and the Euro Zone) are being combined, at the same time that increasingly worse austerity measures and cutbacks are being implemented. Obviously, this situation does not have a “happy ending.” As a last resort, it would be something just like letting the crisis take its course… It is a situation that in a way resembles 1937 in the US, when Roosevelt removed the stimuli. A big difference is that in 1937 the economy was not in decline. The drop began when the plans were removed. The current situation is, in a sense, worse, because the decline has already begun, and, at the same time, stimuli are constantly being withdrawn, and austerity measures and cuts are being increased. This is largely the most that governments have, to intervene to avoid a new Lehman Brothers crisis, no matter how much they want to. It is obvious that the bourgeoisie has learned its lessons both from the 1930’s and from the Lehman Brothers crisis, so it is not very difficult to imagine that they want to avoid a new Lehman Brothers crisis. The problem is that, in order to avoid another scenario like that at the end of 2008, it is likely they will need to use a lot of resources that are precisely the ones they are trying to cut. There is a kind of contradiction in terms between withdrawing the plans, reducing expenditures, etc., and an intervention sufficiently forceful to avoid a new Lehman Brothers crisis. Although it is not possible to rule out the implementation of more forceful plans as a last resort, it would appear that these elements are the ones behind this explosive situation, that does not stop developing nor finish exploding.

Thursday, August 4, 2011